CBO finds no free lunch in minimum wage hike

President Barack Obama holds up a bag of tortilla chips during a visit at a Costco store in Lanham, Md., Wednesday, Jan. 29, 2014, where he spoke about raising the minimum wage the morning after his State of the Union address. (AP Photo/Charles Dharapak)
The Associated Press

President Barack Obama holds up a bag of tortilla chips during a visit at a Costco store in Lanham, Md., Wednesday, Jan. 29, 2014, where he spoke about raising the minimum wage the morning after his State of the Union address. (AP Photo/Charles Dharapak)

Today foreign competition and automation has destroyed millions of jobs. Real wages have stagnated or declined for most workers since the 1990s. The middle class has been shrinking since 1971.

Reversing such trends is probably impossible anytime soon. Higher foreign wages and rising U.S. energy production from “fracking” is causing some good jobs to return.

Yet many experts say the astonishing wave of automation that eliminated high-wage manufacturing and low-wage service jobs is poised to wash through higher wage tiers.

The honest truth is that federal government can do very little about such fundamental economic convulsions. And measures that would truly help — such as overhauling the tax code, balancing the budget and fixing unfunded entitlements — involve very hard political choices.

Tellingly, the CBO said that Congress could help poor families far more efficiently by leaving wages alone and increasing the Earned Income Tax Credit, a direct subsidy that encourages work without destroying jobs.

“The cost to employers of the change in the minimum wage was much larger than the cost to the federal government of the change in the EITC,” the report said, citing a 2007 CBO study.

Last month President Obama proposed a minor expansion of the tax credit for single workers, but nobody in Washington is seriously discussing leveraging the EITC as a way to avoid tinkering with the nation’s labor market.

Apparently neither party in Congress sees much political upside in directly helping the poor.